Posted
by
timothy
on Saturday January 07, 2012 @06:18AM
from the prices-integrate-anticipated-demand dept.

Lucas123 writes "First HP, then EMC, and now NetApp has hiked up the price of its hard disk drives by 5% to 15%. The vendors sent letters to users stating that the flooding in Thailand had caused major component shortages, and while they tried to absorb the supplier price increases, each had to eventually give in. Lenovo also announced it has run out of certain drives for its PC systems including some popular 7,200rpm models."

No, they're seriously saying that a lot of production was there, and that if you take even 40% of production away, you still have major shortages. You don't build plants to produce nearly twice as many drives as there's demand for, just because it may be that some massive natural disaster comes along.

It's a cost saving issue. Having multiple plants doubles or triples the expenses and is a logistics nightmare. This would mean that laptop prices would skyrocket in no time. Paying 5-15% more for hard drives for a while is much cheaper than paying double amount for whole laptops all the time. And since someone is going to cut those prices, it means they all need to.

Stuff like this doesn't happen often either. There haven't been such catastrophic floods in Thailand for 30 years. Sometimes shit happens.

Last time I remember something like this happening was in the early 90's when the cost for sim memory shot up almost overnight due to a fire in a chemical plant. At that time I sold about 30 used, pulled, 4 meg sims for like $125 usd almost overnight. Major panic.

But, one would think these days, buyers would have futures to end this type of supply problem.. Like every other manufacturing industry.

But, one would think these days, buyers would have futures to end this type of supply problem.. Like every other manufacturing industry.

Futures only set a price, they don't magically mean that a factory that's underwater will still deliver. Contracts typically have a "force majeure" clause so they don't have to deliver in this case. And they will take priority, so the more is secured with futures the worse the price changes in the open market will be. You can't make a shortage go away with contracts.

There are limits to economy of scale, so it's not necessarily cost-prohibitive to have a few plants scattered around the world.

I suspect that there are people within the industry who know those limits somewhat better than you do. How do you think a major corporation makes a decision like this? Do they get a load of bean-crunchers and number-counters to work it out, or close their eyes and throw darts at a map?

Sadly most corporate management has trivialized the importance of planning for the growing strength and frequency of precisely this kind of natural disaster. Global climate change is clearly happening and whatever its cause, it makes good solid predictions of where to be careful and where to be safe. Heavier flooding particularly near large bodies of water and tropical regions is well understood. Lowlands will experience more frequent and substantial flooding events. Wildfires and social impact to local populations will be significant as the growing number of flooding and drought events hit tropical and temperate zones around the world.

Business needs to stop politicizing climate change, and begin using the data to protect production in the face of growing environmental instability.

Someone famously said that the distance between the platter and the read head is roughly equivilent to flying a 747 over Mt Everest with one inch to spare. It's not like joey and bubba can buy two pallets of platters, three pallets of drive cases, and a pallet of controller assemblies, a gallon of glue and assemble 20K drives in their garage over a weekend while burning through a pack of cigarettes. These aren't cuban sweat shop cigar factories, these devices are put together in enormous clean rooms with super tight tolerances.

Pardon me, sir. Joey and Bubba would most certainly smoke at least four packs of cigarettes over that weekend, and the airborne particulate matter from said smoking would ask a special "flavor" to the finished products. Please post accurate stats if you're going to post at all.

According to Upgrading and Repairing PCs [google.es] it would currently be like having 4 Sears Towers floating on their sides, side by side, 5mm over the ground moving at almos 7800 kilometres per second while reading 2 centimetres long bits on tracks 30 centimetres away from each other.

Over a "perfectly" flat ground, yes, and with the Sears tower reshaped to take advantage of ground effects. If you adjusted your metaphor to account for the roughness of the earth, it wouldn't work at all, which is why the 747 thing works... well, less badly.

The original analogy didn't talk about the Everest either. I guess Hadlock added it for effect. But just for the fun of it, let's bring it all to Everest sizes so... 15nm turns into 8848m, 590e9 bigger. 0.049 inches (head length) turns into 28,9e9 inches, some 73e9cm. Let's say 7.3e8m or 730000km. Never heard about a plane that big, did you?;)

Yes and no. Hard drives is a bit of an interesting business. Western Digital and Seagate are still market leaders globally because certain components are still only made in the US. The real precision work isn't done overseas. Which is why the chinese never got a foot hold in the market. What's happening overseas is more akin to final assembly. And before Thailand was the Hard Drive capital, Singapore held that title. So it's not like there aren't alternative facilities. Still, these companies made a

Isn't this the real point. Consolidation has allowed just two companies to control everything, including prices. I bet these two have two or three times the capacity needed, but wouldn't dream of messing with the windfall this "extended" natural "disaster" has brought.

If they did have the manufacturing capacity elsewhere to compensate for the loss of output in Thailand, they'd probably claim increased labour costs and jack up the prices anyhow.
We can't win when there's this much consolidation in the market.

I know for a fact that WD have a huge reserve plant where they pay the workers to sit and play cards all day, just to keep supply low and prices high. Seagate have two smaller ones, but they keep the workers in suspended animation.

If they actually controlled the prices, then the flood would of effected nothing. The fact that a supply shortage resulted in a steep price increase shows that the market is actually working as a market. Were there no shortage and prices shot up, that would be evidence of market manipulation, and if prices stayed the same even though there was a shortage it would be stronger evidence.

Suppliers that manipulate price charge the most they possibly can, in a market prices fluctuate with supply and demand.

What I personally don't understand is why is it taking so long to resume production elsewhere ? When a multi-billion dollar industry is threatened, I would expect them to take some of those billions and poop out new facilities at ludicrous speed.

You're right. I should totally fly over there and apply my network and software expertise to building a manufacturing plant. Or not.

I do disaster planning for local businesses, big and small. My clients plan for various levels of disaster. For some, it means having a second building in a nearby city, fully furnished and ready to go live should the main office be affected in any way, be it a power outage, hurricane, or false-flag terrorist attack. For others, it's a matter of making sure everyone has a

Imagine a world where we require those we benefit from to be treated equally regardless of their place of residence.

Imagine that a business employing or contracting out to foreign states must ensure that the workers he exploits receive the same protections as if he were employing directly in the country to which he sells.

Imagine that, rather than receiving tax breaks for offshoring, we ensure that the tax burden of an offshorer can be no lower than someone choosing local employees.

World trade equality, would indeed be an improvement.The problem is that the MHz myth and friends have put us in a situation where we feel we need bigger/better computers that we actually do.I'm in the minority where we actually wear computers out (not just the disks), even when we could afford new ones. I'm not doing more demanding tasks than I was 5 years ago, so whats wrong with a 5 year-old computer?

A five year old PC could have a Core 2 Quad Q6600, three Nvidia 8800GTXs in SLI, and 8GB RAM. That's still pretty powerful, even if it's a joke compared to the workstations that you're using in that complicated render. I'm not sure how well that system would play Skyrim, but I suspect that it'd be able to hold its own quite well. My own system is a Core 2 Duo (E6750), 8800 GTS 512, and 4GB RAM. Skyrim might be the application that makes me finally upgrade my system, after four years. I never found anyt

I just upgraded my brothers computer, a six year old economy diy I built him because his hard drive crashed. Built him a new pc because he was thinking of upgrading anyways. He wanted to be able to play his flash games on facebook without his pc slowing to a crawl.

I'm in the minority where we actually wear computers out (not just the disks), even when we could afford new ones. I'm not doing more demanding tasks than I was 5 years ago, so whats wrong with a 5 year-old computer?

How about a bit of compassion for those Russian hackers who are also using your computer. Why should they have to put up with sub-standard hardware to run their botnet?

Jeez, some people just have no sense of helping the community!

But seriously, I think that in this day of ever more powerful smartphones, an increasing number of people are wearing their computers out.

All the consumer hard drive retailers (e.g. Newegg, microcenter, anywhere) hiked hard drive prices by 200-400% months ago as a response to the floods.
I know the big name storage vendors spend less on spinning media and more on, well, overhead and profits, but they come out looking like good guys if they only hiked their prices 5 to 15 percent.

If their intent is to sell hard drives at this point, they need to fix the prices. I'm just not buying anything until they get back into the reasonable range. The only way to make them do so is to not buy anything. The price increases amounted to gouging.

It has a follow-on effect also, I am also not buying any CPUs or motherboards.

I am not sure I can agree with. Outside this little "event" hard drive prices have been pushing through the floor. I can hardly think of anything that has gotten cheaper faster. Perhaps the price of drive itself has remained somewhat constant over the last 6 years or so but the capacities have continued to jump. Think about what you paided for a 40Mb hard disk in '90, a 40Gb in '00, a pair of 200Gb disks in '05 and what a couple of 2Tb disks, went for before the flood.

Key quote:"Roughly 25 per cent of all global hard drive assembly facilities are located in Thailand, according to industry tracker iSuppli, which said supply would be constrained until the fourth quarter of 2012."

75% of the manufacturing capacity is unaffected. 25% was affected, though production was restarted back in December. The prices remain at about 200-250% of pre-flood prices, even for producers completely unaffected by the floods. Check Newegg yourself... This amounts to "not gouging" and "not cartel pricing" how?

It's the invisible hand of the market, friend. The invisible hand groping and raping consumers.

It doesn't cost a fucking penny more to make the drives in Korea or China than it did last year, but less are being made in Thailand; there is a general shortage, so the market pokes the consumer up the ass for *all* drives being made *anywhere*. Company X or plant Y is unaffected by the shortage at all, but the market sets that company's price the same as that of other companies. The market guarantees that selfis

First of all at least please read the link you provided: "iSuppli also said the flooding may have affected operations of Nidec Corporation, a Japanese company that supplies more than 70 per cent of the motors in global hard drives."

Then, even if the numbers you quote are right I don't see any indication for "cartel pricing" or "gouging" or anything else. The fact is PAYING CUSTOMERS don't think the prices are high enough and they literally just don't stop buying. If you try to sell a now a drive at the "normal" price or even twice that it will just sell out and literally there aren't enough drives in the world to keep the drives on the shelves at prices before "crisis".There is no arbitrary limit at which prices would stop. Even a difference of 1% between supply and demand can increase prices 10 (or 100) times if the customer just don't STOP BUYING.

If there are enough people willing to pay 250% of the prices, why should IT retail companies sell stuff lower? They aren't charities.

In a theoretical world they each would now have 25% fewer hard drives to sell each month, that means fewer entire computer systems sold, which means lower total profits. Meanwhile they still have to pay the same rents to the landlords, the same salaries to their workers. So guess who they'll try to get the money from? Those who need hard drives badly enough. In the real world it'll be even worse and messier than that.

BUT if not enough people are willing to buy, the prices will go down, and the retailers will just have to make less or lose money. In my area, rumour is a large retailer has thousands of unsold drives so they will be reducing the prices to try to get rid of them before production gets back on track.

Imagine there's just about enough oxygen for everyone in the world, and everyone normally paid about USD1 per day. Assume also it's a free market capitalist world.

Suddenly there's a disaster and there's only enough oxygen for 75% of the world. How do you decide who dies? The evil socialists might have some committee do it and thus kill 25% off. But the free market capitalists will let the market decide - and so the price will go up, and likely more than 25% will die (the rich being able to easily afford USD10/day and more). Is that still considered gouging? Maybe. But is it cartel pricing? No - there is no need for a cartel to raise the prices.

There is no such thing as gouging [econlib.org]. There is only "price rises or falls to market-clearing levels."

First of all, if supply drops to 75%, the market price will of course be affected. And it will affect everybody selling whether they were specifically affected by the floods or not. It's a market price on a commodity product.

The effect is to shift the supply curve (on a P-S plot) temporarily to the right - at current prices, the supply is 75% of what it previously. This curve might be pretty flat in the short term, too. The demand curve is unchanged, of course, but the market price absent price controls (which would only result in shortage anyhow), moves to a new position - it is the intersection of the demand curve and supply curves.

You may be making the mistake I have seen many make in comments about this event that the price should rise 33%, making the total revenue the same as it was previously. This would only be the case in the event that the demand curve is linear and has an elasticity (slope) of -1. The linear assumption is ok for small perturbations (and, indeed, is what I used in the above paragraphs) and first year economics courses, but even with that assumption demand elasticity depends on many factors. It is folly to assume that it will be any specific value without actually doing research into the particular industry.

A brief rise in price isn't gouging. It's the market finding the new price, and is justified by the conditions. There are two things you might have been buying in the aftermath of the flooding - 1) a hard drive and 2) a hard drive right now. If you need #2, then you'll certainly be willing to pay more than someone who just needs #1 and can afford to wait for the price to spike and drop.

There sure as fuck is a such thing as 'gouging'. If the stock of retailers is full of product bought at $2.00 and the price drops to $1.00 because of weak demand, they are still going to try to sell the shit at a markup based on the cost of goods already stocked, ie, $2.00. This is otherwise known as gouging, making people pay outrageous prices for a nonexistent shortage. There's plenty of stock.

This is otherwise known as gouging, making people pay outrageous prices for a nonexistent shortage. There's plenty of stock.

It might be your definition of gouging, but it isn't mine. For me the article would have to be a necessity, and the supplier would have to have a (local) monopoly.

Don't want to buy at the prices they're asking? Do without, or go to their competitor down the road. If enough people do that, they'll end up with tons of unsold stock and they'll have to discount heavily to clear it.

Will Newegg get me an identical (and I mean right down to the EXACT model if not the same manufacturing run) replacement drive in my hands on site within 4 hours, 5 years after I bought the thing from them? Will Newegg replace an entire enclosure and all its drives extremely quickly and assist on site with migration if the device(s) sold reach an unacceptable level of hardware failures?

NetApp's never held a gun to my head. They offer storage, software, and services at a price. If you believe their price is

They make almost nothing on drive sales, they make huge margins on the software

A year or two ago I used to work for a company that used NetApp storage. NetApp would charge us a bit over US$1000 for a 1TB SATA drive. The retail price of a 1TB "Nearline SAS" (essentially identical to NetApp's drive) was about $250 (which already had a pretty sweet profit margin built into it, I'm sure, since a "normal" 1TB SATA drive was under $100 at the time).

In the early 80's I was working for a well known computer manufacturer. The rule of thumb than was a hard drive cost a thousand dollars per million bytes. At that cost a 3 terabyte hard drive would cost 3 billion dollars. Until the public can store movies legally on hard drives without any problems these hard drives will not come close to being filled up. Only by giving people a reason to have get hard drives in the terabytes will we increase the demand and thus increase and diversify the places where t

Until the public can store movies legally on hard drives without any problems these hard drives will not come close to being filled up. Only by giving people a reason to have get hard drives in the terabytes will we increase the demand and thus increase and diversify the places where they are manufactured.

But the public CAN do this. There are, in the US, many legitimate places to buy movies online and store them locally.

First, there's "Digital Copy" included with many Blu-Ray discs, for free.

I was looking at WD1002FAEX 1TB drives on Amazon last night and they were $150, this morning i looked again and they were $100. I'm not sure what caused the massive discount - but now would be a good time to grab some if you actually need the storage. It's a reasonable price - they were selling for $90 a year ago.

There's a huge price disparity on these drives from different places - Newegg ($240), TigerDirect ($295), Buy.com still has them at $150 like Amazon did, and now Amazon is at $100. Seems silly t

If you regularly buy from the major storage vendors, you'd know that they already mark up hard drive prices by up to 400%. I think this just indicates that the raw cost of hard drives has got so high, that even with their generous padding, they are feeling the pinch.

, but they come out looking like good guys if they only hiked their prices 5 to 15 percent.

Well a single 300GB replacement disk from IBM could cost you USD 1000 to 1200. If they jack up the price to 400%, their warranty extension program might be a cheaper solution than paying on per-case basis

It was cheaper to buy a NAS box and rip the harddisk out and throw away the electronics than it was to buy a harddisk. I bought 1.5TB a NAS from Medion for $180 during the height of the flood hike. At the time the same1.5TB Seagate harddisk was selling for $200 at the local computer store.

It's strange how the the companies are only now raising their prices at a time where most of the consumer prices are slowly starting to return to normal.

2) One of the various things that extra money goes toward in the enterprise vendor game is having *gobs* of extra inventory so that they can carry out 'business as usual' in the event of a supplier encountering a situation like this. If you call for warranty replace on a part you got cheap, direct from manufacturer, first the cheapo vendor tends to resist more and second when they do relent, in the cheapo case you may have to wait for it to ship internationally, where

I had thought about buying a case of 2TB drives just before the flood because they were so damn cheap. Would have made a nice profit. Honestly they aren't so expensive at the moment, but certainly much more than I would like to pay.

I have a suspicion that like the airlines baggage fees, they'll keep prices this high even after the issues are resolved since consumers will be used to them at that point.Not to downplay the real loss of life and property, but the supplier might use this as an opportunity for the future.

Thats a good thing.. We have some systems that don't need capacity, just something to boot from before mounting remote data, We have been buying 128GB SSD's.. If more people are doing that, then it helps drive the cost of SSD's down, and gets those companies more money for R&D

All the companies mentioned in this article with the exception of Lenovo, are all U.S. companies. Does building factories in the U.S. seem so laughable nowadays that such an idea is not even entertained? I did some research and it seems that the average wage for skilled labor is about $163/month in Thailand. How bad would the U.S. economy have to get before those kind of wages become acceptable here?

It's not a matter of what wage levels are acceptable in the US; but rather what type of wages support the onerous and complex tax system implemented in the US. Even using a simple comparison [wikipedia.org] of taxation, you can see the US tax rates and structure are so complex and expensive that the US cannot support simple labor jobs. I personally know individuals in the US who cannot keep employment at basic jobs because the complexity of our taxation and economic implementation overwhelms them. And legalized financial

The only way for American manufacturing to compete on a cost basis with slave labor is to automate humans out of the equation, except for the people who program and repair the robots of course. Or, of course, to place a tariff on goods which come from countries with weak labor laws or enforcement of same to level the playing field. And frankly, I don't want the manufacturing jobs to come back without a stronger EPA, and the same kinds of tariffs placed on goods coming from countries without strong environme

Well, that's a bit more than one month's rent of a 1 bedroom apartment in SF, NYC, or DC. Not sure what you'd do for housing for the other 11 months, nor what you'd do for food, clothing, transportation, or just about anything else. I spend $2000/yr in gasoline. There was a time where I spent $2000/yr at Starbucks (a habit I've since kicked to the curb). That $163/month would pay for about 3/4 of a trip to the grocery store for two weeks worth of food.

Seriously, have you seen what EMC and Netapp charge for drives? They could afford a temporary price in drives without passing anything along to their customers and still make a tidy profit. Pardon me if I don't shed a tear for this temporary uptick in their materials cost.

The reason they avoided a cost uptick so long is because they spend a lot of money to stockpile replacement parts that *usually* will never be sold or shipped and thus had a huge stockpile. You are paying for that continuity being guaranteed throughout your usually lengthy warranty.

If you don't *need* that continuity then don't buy their components. Functionality wise you can get by without those vendors by using much cheaper alternatives and it may very well be more appropriate in your case (if you have

I purchased a Lenovo W520 a couple of weeks ago, and there simply was no 7200rpm choice, it was 5400rpm or SSD. (and the 5400rpm was the same price as what the 7200 one would have been).So I had to purcharse a SSD instead, which was significantly more expensive.

Why would you want a noisy, hot 7200 rpm drive in a laptop?? The seek time improvement over the 5400rpm is modest and linear, but the energy use is quadratic. For something that runs off a battery, this doesn't really sound like the wisest of design choices.

That didn't make any sense. 5400RPM and 7200RPM drives have identical seek time. Seek time is governed by form factor, areal density, is proportional to the length of the access arm, and is independent of rotation speed (the longer the access arm, the greater the seek time). Random access time to read or write a sector is related to the sum of seek time and rotational delay.

Hmm. For some reason I always thought that rotational delay was folded into the seek time numbers. Probably because I never actually bothered to do the calculation. Although my math puts the period of both drives at 11ms and 8.3 ms, which is pretty close to the seek time numbers on most drives (and would have an expectation value of 5.5 ms and 4.2 ms....). I would expect, for instance, a drive with a max head travel time of 8ms and a max rotational delay of 8ms to have an average total of 8ms, with a gau

Yes, they are selling you a Seagate Constellation 1TB drive for waaaay more than what you would pay on NewEgg. But they burn in their drives before shipping them to you. This saves them money in CRUs and saves you time in drive replacements. More than anything, you are paying for their support.

From someone who recently experienced a pretty nasty multiple-drive failure in an EMC array, holy shit their support is amazing. I will continue to spend my (employer's) money on EMC gear based solely on how they

Yes, they are selling you a Seagate Constellation 1TB drive for waaaay more than what you would pay on NewEgg. But they burn in their drives before shipping them to you.

Maybe they do burn them in. But it doesn't really cost $1200 to burn-in an $80 SATA drive.

What it is, is that they have "hidden" a portion of the storage array cost in the price of individual disk drives.
Similar to the way that Oracle and other products hide part of their application cost in the price of adding additional CPUs to